Lloyds Banking Group has reported a jump in profits in the first three months
of the year on the back of improved margins and lowers costs.

The increase in statutory pre-tax profits for the first quarter to £2.04bn represented a sevenfold increase year-on-year and compared to a profit for the final three months of last year of just £1m.

The improvement was driven by a better-than-forecast performance from the state-backed lender’s non-core division, which houses its toxic assets, were reported a lower than expected loss for the period of £392m as impairments fell 22pc quarter-on-quarter.

A sale of a 20pc stake in St James’s Place gave Lloyds’ results a £394m boost and means the wealth manager is now no longer included in the bank’s results, though it retains a 37pc holding.

Unlike previous quarters, the bank was also helped by the absence of new provisions against the cost of compensating customers mis-sold payment protection insurance and interest rate hedging products that have so far cost it more than £7bn.

Antonio Horta-Osorio, chief executive of Lloyds, said: “We are now further ahead in our plan to transform the group, and are delivering real benefits for customers, colleagues and shareholders by investing behind our simple, UK customer-focused retail and commercial banking model.

The results come less than a week after Lloyds was hit by the collapse of a deal to sell 632 branches to the Co-op. The bank confirmed it would now seek to float the business next year and had applied to the European authorities for an extension to an October deadline for selling the business.

Mr Horta-Osorio said there had not been any talks with the government regarding the taxpayers’ 39pc stake in the bank. However, with the improvement in Lloyds’s results the bank is now on the path towards being able to resume its dividend.

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Despite the rise in profits analysts at Espirito Santo Investment Bank have maintained their ‘sell’ rating on Lloyds shares. “The main reason for the beat is the non-core and given that we and the market is now valuing only the core business at Lloyds, we continue to believe that the returns potential of core is already reflected in the current valuation,” said the analysts in a note to clients this morning.

Shares in the bank climbed 5.5pc in early trading on Tuesday, the FTSE 100's biggest riser.